International Public Sector Accounting Standards Board (IPSASB) Prof. Jesse Hughes IPSASB Consultative Group Member

International Public Sector Accounting International Public Sector Accounting Standards Board (IPSASB)Standards Board (IPSASB)

Prof. Jesse HughesIPSASB Consultative Group Member

IFAC IPSASBIFAC IPSASBIFAC IPSASBIFAC IPSASB

November 2007 2IPSASB UPDATE

OverviewOverview

• Background -IFAC & IPSASBBackground -IFAC & IPSASB

• IPSASB Strategic themes IPSASB Strategic themes

• Project updates – past, present, futureProject updates – past, present, future


November 2007 IPSASB UPDATE

Who is IFAC?Who is IFAC?

• Expanding organization – about 155 member bodies Expanding organization – about 155 member bodies in 120 countriesin 120 countries

• Represents 2.5 million accountants in public Represents 2.5 million accountants in public practice, education, government service, industry practice, education, government service, industry and commerceand commerce

IFACIFAC



IFAC’s MissionIFAC’s Mission

– To serve the public interest,To serve the public interest, IFAC will IFAC will

continue to strengthen the worldwide continue to strengthen the worldwide

accountancy profession and contribute to the accountancy profession and contribute to the

development of strong international development of strong international

economies by…economies by…

IFACIFAC



IFAC’s MissionIFAC’s Mission

• Establishing and promoting adherence to high Establishing and promoting adherence to high quality professional standards quality professional standards

• Furthering the international convergence of Furthering the international convergence of such standardssuch standards

• Speaking out on public interest issues where Speaking out on public interest issues where the profession’s voice is most relevantthe profession’s voice is most relevant

IFACIFAC



Standard Setting ActivitiesStandard Setting Activities

• Auditing and Assurance Standards (IAASB)Auditing and Assurance Standards (IAASB)

• Ethics Standards (IESBA)Ethics Standards (IESBA)

• Accounting Education Standards (IAESB) Accounting Education Standards (IAESB)

• International Public Sector Accounting International Public Sector Accounting Standards (IPSASB)Standards (IPSASB)

• Compliance Program for member bodiesCompliance Program for member bodies

IFAC IPSASBIFAC IPSASB




IPSASBIPSASB

• Develops International Public Sector Accounting Develops International Public Sector Accounting Standards (IPSASs) - cash and accrualStandards (IPSASs) - cash and accrual

• Supported by the UN, World Bank, OECD, NATO Supported by the UN, World Bank, OECD, NATO and othersand others

• Facilitates convergence of national and Facilitates convergence of national and international public sector standardsinternational public sector standards



BackgroundBackground

• Public Sector Committee established 1986Public Sector Committee established 1986 - - reconstituted as IPSASB reconstituted as IPSASB Nov. 2004 Nov. 2004

• Standards program 1996 – phase 1 completed 2002Standards program 1996 – phase 1 completed 2002

– Primary focus on accrual basis, but also Primary focus on accrual basis, but also develop/support Cash Basis IPSASdevelop/support Cash Basis IPSAS



IPSASB ProcessIPSASB Process

• Meetings 3 times per yearMeetings 3 times per year

• Open to the publicOpen to the public

• All materials publicly available – posted on internetAll materials publicly available – posted on internet



IPSASB IPSASB Members 2007 Accounting Profession -15 membersAccounting Profession -15 members

UK (Chair), Australia, Argentina, Canada, India, Israel, Japan, China, Mexico, New Zealand, Netherlands, Norway, France South Africa, USA

Public Members -3Public Members -3Switzerland, Italy, USA

ObserversObserversADB, EU, IASB, IMF, INTOSAI, OECD, UN, UNDP, World Bank



ObjectivesObjectives

• Strengthen governance frameworkStrengthen governance framework

• Enhance accountability and transparencyEnhance accountability and transparency

• Provide framework for auditProvide framework for audit

IPSASs - A “resource” for national standards setters IPSASs - A “resource” for national standards setters and others to useand others to use



MandateMandate

• Issue standards (IPSASs)Issue standards (IPSASs)• Promote adoption/convergence to IPSASsPromote adoption/convergence to IPSASs• Issue other documents to provide guidance on Issue other documents to provide guidance on

issuesissues



IPSASB ApproachIPSASB Approach

• Promote adoption of an accrual basisPromote adoption of an accrual basis

• Acknowledge wide use of cash basisAcknowledge wide use of cash basis

– Develop/Support Cash Basis IPSASDevelop/Support Cash Basis IPSAS

• Develop guidance e.g. transition to accrual Develop guidance e.g. transition to accrual basis (Study 14)basis (Study 14)



Developing StandardsDeveloping Standards

• Accrual basis standards based on IFRSs Accrual basis standards based on IFRSs

• Convergence with IFRSs unless public sector Convergence with IFRSs unless public sector specific reason for departurespecific reason for departure

• Current hierarchy – where no IPSAS exists consider Current hierarchy – where no IPSAS exists consider IASB standards or national standardsIASB standards or national standards

• Public sector specific standardsPublic sector specific standards

• Cash basis IPSASCash basis IPSAS



Transparent “Due Process”Transparent “Due Process”

• Consultative documents - for commentConsultative documents - for comment• Exposure drafts: at least 4 months for commentExposure drafts: at least 4 months for comment• Meetings in public, agenda materials on webMeetings in public, agenda materials on web• Steering Committees, Task Forces, Project Steering Committees, Task Forces, Project

Advisory Panels (PAP)Advisory Panels (PAP)• Consultative groupConsultative group• Regional Seminars/round table discussions in Regional Seminars/round table discussions in

conjunction with each IPSASB meetingconjunction with each IPSASB meeting



Current IPSASsCurrent IPSASs

• 24 accrual IPSASs 24 accrual IPSASs • 1 Comprehensive Cash Basis IPSAS1 Comprehensive Cash Basis IPSAS



Available on the IPSASB Web Site:Available on the IPSASB Web Site:

• All IPSASsAll IPSASs– (including Spanish and French translations)(including Spanish and French translations)

• All current Exposure Drafts and other publicationsAll current Exposure Drafts and other publications• IPSASB Updates on most recent IPSASB meetingsIPSASB Updates on most recent IPSASB meetings• IPSASB meeting papers (before each meeting)IPSASB meeting papers (before each meeting)

FREE OF CHARGE AT: WWW.IPSASB.ORG FREE OF CHARGE AT: WWW.IPSASB.ORG




ChallengesChallenges

• Broad spectrum of practice internationally –from Broad spectrum of practice internationally –from cash basis to full accrualcash basis to full accrual

• Availability of resources within jurisdictionsAvailability of resources within jurisdictions

• Previous limited resources for IPSASB has delayed Previous limited resources for IPSASB has delayed full standard setting programfull standard setting program



AdoptionAdoption

• UNUN• OECD, NATO, EC, IFAC, INTERPOLOECD, NATO, EC, IFAC, INTERPOL• A number of countries in processA number of countries in process



Strategic ThemesStrategic Themes

• Conceptual framework for public sectorConceptual framework for public sector

• Public sector specific issues including Public sector specific issues including convergence convergence with statistical bases where with statistical bases where appropriateappropriate

• IFRS convergenceIFRS convergence

• Promotion & communicationPromotion & communication



Conceptual FrameworkConceptual Framework

Objective:Objective:

To develop a public sector conceptual frameworkTo develop a public sector conceptual framework

Divergence from IASB framework only where Divergence from IASB framework only where necessary to reflect public sector differencesnecessary to reflect public sector differences



Conceptual Framework Conceptual Framework

• Concepts/definitions/principles – embedded in Concepts/definitions/principles – embedded in IPSASsIPSASs

• No explicit explanation – articulate/inter-No explicit explanation – articulate/inter-relationships relationships

• Collaborative ProjectCollaborative Project

• IASB platform for IPSASs – neither replicating IASB platform for IPSASs – neither replicating IASB C/F nor diverging except where necessaryIASB C/F nor diverging except where necessary



Conceptual FrameworkConceptual Frameworksingle EDsingle ED

Group 1Group 1

Objectives, scope, qualitative characteristics, reporting entityObjectives, scope, qualitative characteristics, reporting entity

Group 2Group 2

Definitions, elements, scope consequencesDefinitions, elements, scope consequences

Group 3Group 3

measurement, presentation and disclosuremeasurement, presentation and disclosure

Group 4 Group 4

Cash basisCash basis



Public Sector Specific ProjectsPublic Sector Specific ProjectsRecent IPSASs/EDsRecent IPSASs/EDs

• Non-exchange revenues Non-exchange revenues

• General government sectorGeneral government sector

• Budget reportingBudget reporting

• External assistanceExternal assistance



IPSAS 23 Non-exchange RevenueIPSAS 23 Non-exchange Revenue • Asset/liability approachAsset/liability approach

• Assets recognized from non-exchange transactions Assets recognized from non-exchange transactions initially measured at fair value at date of acquisitioninitially measured at fair value at date of acquisition

• Stipulations -conditions and restrictionsStipulations -conditions and restrictions

• Conditions - both performance and return obligationsConditions - both performance and return obligations– Unfulfilled conditions give rise to liabilitiesUnfulfilled conditions give rise to liabilities



IPSAS 23 Non-exchange RevenueIPSAS 23 Non-exchange Revenue• Asset in respect of taxes arises when taxable event Asset in respect of taxes arises when taxable event

occurs & asset recognition criteria are metoccurs & asset recognition criteria are met– Entity may have a receivable before cash is Entity may have a receivable before cash is

received.received.– Entity has to make an assessment about the Entity has to make an assessment about the

likelihood of actually receiving the assets (e.g. likelihood of actually receiving the assets (e.g. some receivable become bad debts).some receivable become bad debts).

– Issuing an assessment is not essential.Issuing an assessment is not essential.


IPSAS 23 Non-Exchange RevenueIPSAS 23 Non-Exchange Revenue

• Distinction between tax expenses and tax Distinction between tax expenses and tax expendituresexpenditures– Tax expenses are actual expenses of the entity – Tax expenses are actual expenses of the entity –

settled net through the tax systemsettled net through the tax system

– Tax expenditures are concessions to tax payers – Tax expenditures are concessions to tax payers – e.g. an income tax deduction for a non-income e.g. an income tax deduction for a non-income related expense like home mortgage interest.related expense like home mortgage interest.



IPSAS 23 Non-Exchange RevenuesIPSAS 23 Non-Exchange Revenues

• AppropriationsAppropriations

– Transfers between public sector entitiesTransfers between public sector entities

– Capital appropriations will rarely be Capital appropriations will rarely be contributions of net assets/equitycontributions of net assets/equity

– Liability only recognized if there is a Liability only recognized if there is a requirement to return funds not used in requirement to return funds not used in accordance with the stipulations of the accordance with the stipulations of the appropriationappropriation




• Grants from other entitiesGrants from other entities

– Many grants come with conditions – if a return of Many grants come with conditions – if a return of grant is required – recognize liabilitygrant is required – recognize liability

– Revenue recognized as condition fulfilled.Revenue recognized as condition fulfilled.

– Grants from the European Commission usually Grants from the European Commission usually contain conditions and result in the recognition contain conditions and result in the recognition of a liability until the condition is fulfilled.of a liability until the condition is fulfilled.




• Bequests, gifts , donations are normally recognized Bequests, gifts , donations are normally recognized immediately as revenue unless there is a condition immediately as revenue unless there is a condition attached.attached.

• Recognition of in-kind services permitted but not Recognition of in-kind services permitted but not requiredrequired– E.g. Services from volunteersE.g. Services from volunteers– Sometimes difficult to value.Sometimes difficult to value.




• Revenue is measured at the fair value of the net Revenue is measured at the fair value of the net inflow.inflow.

• Five year transitional provision for taxes/Three Five year transitional provision for taxes/Three years for other non-exchange transactionsyears for other non-exchange transactions– Taxes often have estimation/measurement Taxes often have estimation/measurement

issues that take additional time to resolve.issues that take additional time to resolve.




General Government SectorGeneral Government SectorDisclosures IPSAS 22Disclosures IPSAS 22

Applies to whole of government - accrual basisApplies to whole of government - accrual basis• Disclosure not required but “Rules” if elect to discloseDisclosure not required but “Rules” if elect to disclose• Disaggregate Gov Consolidated Fin StatementsDisaggregate Gov Consolidated Fin Statements• ““GGS” as defined in statistical reporting basesGGS” as defined in statistical reporting bases• Reconcile GGS to the IPSAS financial statements Reconcile GGS to the IPSAS financial statements • Does not require/preclude reconcil’n to GFS numbersDoes not require/preclude reconcil’n to GFS numbers• Applies for periods commencing 1 January 2008 Applies for periods commencing 1 January 2008



Budget ReportingBudget Reporting

• IPSAS 24 “Presentation of Budget Information in IPSAS 24 “Presentation of Budget Information in Financial Statements” accrual basisFinancial Statements” accrual basis

• Amendments to Cash Basis IPSAS – additional Amendments to Cash Basis IPSAS – additional section 1.10 “Presentation of Budget Information in section 1.10 “Presentation of Budget Information in Financial Statements”Financial Statements”




• Prior – budget information comparison encouraged Prior – budget information comparison encouraged only if on same basisonly if on same basis

• Entities making budgets publicly available (does not Entities making budgets publicly available (does not require public availability)require public availability)

• Basis of preparation does not need to be the sameBasis of preparation does not need to be the same

• Comparison is on the basis of the budgetComparison is on the basis of the budget

• Effective date January 1 2009 – earlier adoption Effective date January 1 2009 – earlier adoption encouragedencouraged




• Comparison of actual amounts to both original and Comparison of actual amounts to both original and final budget (separate financial statement if not same final budget (separate financial statement if not same basis)basis)

• Explanation of material differences - financial Explanation of material differences - financial statements or x-ref public documents statements or x-ref public documents

• Reconciliation of budget based actual with financial Reconciliation of budget based actual with financial statement actual when bases differstatement actual when bases differ

• Explanation of differences between original and Explanation of differences between original and final budget - financial statements or x-ref public final budget - financial statements or x-ref public documentsdocuments



Disclosure of External Disclosure of External Assistance (Cash Basis)Assistance (Cash Basis)

• OECD and Multilateral Development Banks - OECD and Multilateral Development Banks - harmonize/reduce compliance costsharmonize/reduce compliance costs

• Differing views Differing views • Approved revised ED:Approved revised ED:

– required and encouraged disclosuresrequired and encouraged disclosures– field tested EDfield tested ED

• IPSASB currently considering draft IPSAS for issue IPSASB currently considering draft IPSAS for issue in December 2007.in December 2007.



Public Sector Specific ProjectsPublic Sector Specific ProjectsCurrent and FutureCurrent and Future

• Social policy obligationsSocial policy obligations

• Service concessions (PPPs)Service concessions (PPPs)

• Heritage assetsHeritage assets



Social Policy ObligationsSocial Policy Obligations

• Reservations over extent of liability recognized & Reservations over extent of liability recognized & mirroring of existing approachesmirroring of existing approaches

• Reservations reinforced by minority view in FASAB Reservations reinforced by minority view in FASAB Preliminary Issues PaperPreliminary Issues Paper

• Considering change of approach to presentation and Considering change of approach to presentation and disclosure (would exclude recognition)disclosure (would exclude recognition)

• Present obligation for cash transfers when Present obligation for cash transfers when all all eligibility criteria have been meteligibility criteria have been met



Social Policy ObligationsSocial Policy Obligations• Disclosed liability: present value of future cash Disclosed liability: present value of future cash

flows to all eligible participants at reporting dateflows to all eligible participants at reporting date

• No present obligation in respect of individual goods No present obligation in respect of individual goods and services (e.g. education and health)and services (e.g. education and health)

• Not a fiscal sustainability statementNot a fiscal sustainability statement

• Acknowledgement of importance of fiscal Acknowledgement of importance of fiscal sustainability statements and will be addressed sustainability statements and will be addressed initially in conceptual framework projectinitially in conceptual framework project

• Approach early step - not last wordApproach early step - not last word



PPPs/Service ConcessionsPPPs/Service Concessions

• IPSASB work programIPSASB work program

• Survey – important issueSurvey – important issue

• 3 March 2005 – IFRIC3 March 2005 – IFRIC

– D12 – Determining the Accounting ModelD12 – Determining the Accounting Model

– D13 – The Financial Asset ModelD13 – The Financial Asset Model

– D14 – The Intangible Asset ModelD14 – The Intangible Asset Model

• Operators onlyOperators only

• IPSASB has established a task force to address this IPSASB has established a task force to address this from a public sector perspectivefrom a public sector perspective



Heritage AssetsHeritage Assets

• Currently no requirement to recognize Currently no requirement to recognize • If recognize, disclose based on IPSAS 17If recognize, disclose based on IPSAS 17• February 2006 Consultation Paper –based February 2006 Consultation Paper –based

on UK ASB Discussion Paperon UK ASB Discussion Paper• Range of Responses on issues – some Range of Responses on issues – some

agreement; some polarizationagreement; some polarization



Heritage AssetsHeritage Assets • Considerable support for additional Considerable support for additional

disclosures regardless of recognition and disclosures regardless of recognition and measurementmeasurement

• Project brief to March 2007 meetingProject brief to March 2007 meeting

• IPSASB has deferred consideration of this IPSASB has deferred consideration of this projectproject



IFRS Convergence ProgramIFRS Convergence ProgramRecent IPSASs and EDsRecent IPSASs and EDs

• General improvements projectGeneral improvements project

• Impairment of cash-generating assetsImpairment of cash-generating assets

• Employee benefitsEmployee benefits



General Improvements ProjectGeneral Improvements Project

• December 2003 - IASB’s Improvements Project – IASB’s Improvements Project – reduce or eliminate alternative, redundancies and reduce or eliminate alternative, redundancies and conflicts conflicts

• Deal with some convergence issuesDeal with some convergence issues

• Black and grey letters equal authorityBlack and grey letters equal authority

• Clarify hierarchyClarify hierarchy

• Make other improvementsMake other improvements



General Improvements ProjectGeneral Improvements Project

• 11 IPSASs – improvements approved in line 11 IPSASs – improvements approved in line with IASB’s improvements with IASB’s improvements

• (Effective date - 1 January 2008(Effective date - 1 January 2008



Impairment of Cash-Generating Impairment of Cash-Generating AssetsAssets

• ED Issued: October 2006/Consultation Expiry 28 February ED Issued: October 2006/Consultation Expiry 28 February 2007. Approval expected November 20072007. Approval expected November 2007

• Based on IAS 36Based on IAS 36

• Corporate assets and non-cash-generating assets Corporate assets and non-cash-generating assets contributing to cash-generating unitscontributing to cash-generating units

• GoodwillGoodwill

• Definition of cash-generating assetsDefinition of cash-generating assets

• Complements IPSAS 21 Impairment of non-cash Complements IPSAS 21 Impairment of non-cash generating assetsgenerating assets



Employee BenefitsEmployee Benefits• Issued: October 2006/Consultation Expiry 28 February Issued: October 2006/Consultation Expiry 28 February

20072007• Based on IAS 19Based on IAS 19• Discount rate - Discount rate - government bonds unless high quality government bonds unless high quality

corporate bonds better reflection of risk free ratecorporate bonds better reflection of risk free rate• CorridorCorridor• Composite social security programComposite social security program• 5 years “transition” period for adoption5 years “transition” period for adoption• Approval expected November 2007Approval expected November 2007



IFRS Convergence ProgramIFRS Convergence ProgramFutureFuture

• Considering continued commitment to convergence Considering continued commitment to convergence unless public sector specific reason for departure – unless public sector specific reason for departure – make the casemake the case

• Standards not yet addressed (e.g. FI, business Standards not yet addressed (e.g. FI, business combinations, intangibles)combinations, intangibles)

• IPSASs related to current IASB projectsIPSASs related to current IASB projects

• IPSASs that need updating IPSASs that need updating



IFRS Convergence programIFRS Convergence programNew and FutureNew and Future

• Borrowing Costs (ED for approval November 2007)Borrowing Costs (ED for approval November 2007)

• Financial instruments (ED to be reviewed Nov Financial instruments (ED to be reviewed Nov 2007)2007)

• Business combinationsBusiness combinations

• Intangible assetsIntangible assets

• Continuous general improvements projectContinuous general improvements project

• Others?Others?



IPSASBIPSASB

The Good NewsThe Good News• IPSASB now fully resourced with staffIPSASB now fully resourced with staff

• Significant new funding commitmentsSignificant new funding commitments

• Canadian government support ($1M)Canadian government support ($1M)

• Other funders – CICA, World Bank, ADB, Other funders – CICA, World Bank, ADB, SECO, EC, UN, China, New Zealand.SECO, EC, UN, China, New Zealand.

• Establishment of main office in Toronto, Establishment of main office in Toronto, CanadaCanada



Other Potential Projects Other Potential Projects

• Review implementation of Cash Basis IPSASReview implementation of Cash Basis IPSAS

• Reporting long term fiscal sustainabilityReporting long term fiscal sustainability

• Operations review (MD&A)Operations review (MD&A)

• Applicability of fair value to governmentsApplicability of fair value to governments

• Survey on adoption of IPSASs and implementation issues Survey on adoption of IPSASs and implementation issues

• Reporting financial performance Reporting financial performance

• Non-financial performance reportingNon-financial performance reporting

International Federation of AccountantsInternational Federation of Accountants

www.ifac.orgwww.ifac.org

Pros and Cons of Accrual Accounting

• www.icgfm.org• Public Fund Digest

Documents

International Public Sector Accounting Standards Board (IPSASB) Prof. Jesse Hughes IPSASB Consultative Group Member